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The OPEC+ alliance may be risking a repeat of last year’s oil market boom and bust.
Brent crude prices shot above $90 a barrel on Thursday and analysts warned of a further increase to $100. The rally came after Saudi Arabia and its partners signaled they’ll continue to squeeze supplies despite robust fuel demand and flaring geopolitical tensions in the Middle East.
It’s starting to look a lot like the market narrative of 2023.
Last April, crude traded in the high $80s as OPEC+ launched new supply cuts despite resilient fuel demand and geopolitical tensions over Russia’s invasion of Ukraine. Analysts predicted a return to $100 a barrel, which nearly arrived a few months later.
For the Organization of Petroleum Exporting Countries — and bullish crude traders — things began to sour soon after.
High oil prices triggered fears of “demand destruction” and stoked a flood of additional supplies from the US and across the Americas. Expectations of scarcity flipped to surplus, slashing Brent futures by 19% in the fourth quarter and compelling OPEC+ to announce additional output cuts.
Whether the market plays out in the same fashion this year may hinge on the next OPEC+ meeting in early June.
At least year’s gathering, group leader Saudi Arabia unveiled an extra 1 million barrel-a-day cut that it described as a “lollipop” — a treat for oil producers and bullish traders alike. The big question this time round is whether OPEC+ could decide it’s safer to calm the market’s sugar rush.
